Company insolvencies fall in July. Good-oh!

Not only has unemployment fallen, now it turns out that fewer companies are going bust. Strangest double dip recession ever.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Well, this is confusing. Just a fortnight after The Insolvency Service announced that more firms went bust in the second quarter of 2012 compared to last year, Experian has released its insolvency data. It reckons that fewer firms went to the wall in July.  So the UK isn’t in such dire straits after all?

According to Experian’s latest Business Insolvency Index, insolvencies in the UK have dropped by 9.5% year-on-year in July, with just 1,776 companies failing against 1,962 companies a year earlier. And up in Scotland, the insolvency rate is now the lowest in two years. Over 25% fewer businesses failed last month compared to 2011.

Of course, some sectors are faring better than others. Broadly ‘non-food retail’ is doing well: the rate of insolvencies is down to 0.1% from 0.2% last year. The exception is the car industry where insolvencies have increased by a shocking 41.7%. But given that car manufacturing is doing rather well at the moment, this might be an artefact of the way the survey was constructed.

The number crunchers at Experian have also found another interesting trend. It turns out that supersized firms (those employing more than 500 staff) and the smallest companies (with between 11 and 25 employees) are the most recession proof. The ‘squeezed middle’ is back - and this time it means business.

Max Firth, managing director of business information services at Experian, says that the data is pretty positive but stops short of declaring that we’re on the home stretch: ‘Since March this year, when the insolvency rate peaked at 0.11%, it has remained fairly stable - between 0.08% and 0.09%,’ he says. ‘The lack of any real increase is clearly welcome and this picture is unlikely to change in the near future.’

Firth’s caution is down to the fact that the large drop in insolvencies can be attributed to the rising popularity of company voluntary arrangements (CVAs), where firms avoid going into administration by asking lenders and creditors - such as landlords - to renegotiate their debts. Travelodge is the latest firm to profit from a CVA, walking away from 49 loss-making hotels last week, and writing off £700m in debt.

CVAs are definitely on the rise and picking up momentum. According to accountancy firm Wilkins Kennedy, there were 10% more CVAs to June 30 this year, hitting 769. So firms aren’t performing better, they’re just getting better at renegotiating their debts. Let’s hope they can buy enough time to survive until the upturn…

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